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Sometimes the drawee, instead of making the payment of the bill makes a part payment. Part payment cannot be treated as the payment of the bill. Following steps will be adopted to make the accounting treatment of the part payment.

 

(i)                 Dishonour of the bill

(ii)               Accepting payment in part

(iii)             Charging interest on the amount still due

(iv)              Either receiving the total amount due or drawing a fresh bill.

 

Illustration 13. Before the due date of the bill for $ 300:

 

(a)   X, the acceptor approaches us and pays $ 100 in cash and asks us to draw on him another bill for $ 215, $ 15 being for interest, we agree to it;

 

(b)   X pays $ 25 for interest; and we draw another bill for the full amount which he accepts ;

 

(c)    X pays $ 115 and accepts another bill for $ 200.

 

Pass the necessary journal entries to record the above transactions in your books.

Solution.                                            

Journal Entries

Note. In case of renewal of the bill excess amount paid or agreed to be paid over the amount due is supposed to be interest whether it is mentioned or not. In case (c) above $ 15 paid in excess will be treated as interest.

 

Illustration 14. A bill for $ 1,000 is drawn by A on Band accepted by the latter payable at the New Bank of India. Show what entries should be passed in the books of A under each of the following circumstances

 

(i)                 If A retained the bill till the due date and then realised it on maturity.

(ii)               If he discounted it with his bankers for $ 950.

(iii)             If he endorsed it to his creditor C in full settlement of his debt.

(iv)             If he sent it to his bankers for collection.

 

Also give necessary entries in each of the cases if the bill is dishonoured.

 

Solution.                                                         Journal Entries

In the books of A

Journal Entries

(If the bill is dishonoured)

Note. In case of dishonour of the bill drawee’s account is always debited, whether the bill is with the drawer or bank or endorsee or sent to bank for collection. (lt should be verified from above that B ‘s account has been debited in all cases).

 

ASSIGNMENTS

THEORETICAL QUESTIONS

 

A. Objective Type Questions :

I. Indicate the alternative which you consider to be suitable:

1. A bill of exchange has …… parties.

(a) one                                     (b) two

(c) three                                   (d) four.

 

2. In case of renewal of a bill interest will be calculated for the period of ……

(a) original                               (b) fresh bill

(c) original and fresh bill         (d) six months.

 

3. Discount in case of discounting the bill will be calculated for the period between the date of ……

(a) Drawing and discounting the bill  (b) Discounting and due date

(c) April I to March 31                        (d) January 1 to December 31.

 

4. A bill was drawn on January 1. 2006 for six months. The drawee cleared the bill on 4th March, 2006. The drawee should be allowed rebate for …… months.

(a) six

(c) three

(b) four

(d) two.

 

5. Noting charges are paid to the notary public by ……

(a) drawer                                            (b) bank

(c) endorsee                                         (d) either of the three parties.

 

6. For payment of noting charges to the notary public ……

(a) debit noting charges account         (b) debit bank account

(c) credit                                              (d) credit cash account.

 

7. Bills of exchange is drawn by ……

(a) debtor

(c) purchaser

(b) creditor

(d) bank.

 

8. A bill for $ 1.000 was dishonoured with $ 15 as noting charges. It was renewed with interest of $ 20. The amount of new bill will be ……

(a) $ 1,000

(c) $ 1,035

(b) $ 1,015

(d) $ 965.

 

9. The entry regarding payment of the bill will be passed in the books of drawer if the bill is ……

(a) retained by the drawer      (b) discounted

(c) endorsed                            (d) retained or sent to bank for collection.

 

10. The payment of Promissory Note is made by its ……

(a) maker                                 (b) payee

(c) drawer                                (d) bank.

 

Ans. 1. (c) 2. (b) 3. (b) 4. (b) 5. (d) 6. (d) 7. (b) 8. (c) 9. (d) 10. (a).

 

II. State whether the following statements are True or False :

 

  1. 1.      Payment of the bill before its due date is known as retiring a bill under rebate.
  2. 2.      Renewal of the bill assumes the dishonour of the original bill.
  3. 3.      In case of part payment the bill is treated as dishonoured.
  4. 4.      Full payment of the bill can be realised after the insolvency of drawee.
  5. 5.      While passing entry regarding dishonour of the bill in the books of Drawer. Drawee’s account is always debited.
  6. 6.      Noting charges are gain for the drawer.
  7. 7.      Noting charges are expense for drawee.
  8. 8.      In case of renewal of the bill, if the interest has been received in cash. the amount of the fresh bill will include interest also.
  9. 9.      There is no noting charges Ale in the books of Drawer.

 

Ans. 1. True 2. True 3. True 4. False 5. True 6. False 7. True 8. False 9. True.

 

B. Very Short Answer Type Questions :

 

1. Mention the cases, in which the payment of the bill will be recorded in the books of Drawer.

 

2. What will be the amount of the fresh bill if a bill for $ 1,000 is renewed with interest of $ 20 ? (Suppose the interest has been received in cash).

 

3. Mention the period for which discount is calculated in case of discounting the bill.

 

4. What are the situations, in which the drawer does not pass entry regarding payment of the bill ?

 

5. In case of dishonour of the bill, the drawer debits one particular account in every situation. Name that account.

 

6. Mention the period for which the interest is calculated in case of renewal of the bill.

 

7. Mention whether noting charges is gain or loss or neither gain nor loss for drawer.

 

8. What are the different uses available to a holder for dealing with Bills Receivable ?

 

C. Short Answer Type Questions :

 

  1. Explain the meaning of days of grace and discuss its importance in the calculation of due date.
  2. In what circumstances the bill is supposed to be dishonoured ? Mention these situations.
  3. Explain the meaning of retiring the bill under rebate.
  4. Explain the process of renewing the bill from accounting point of view.
  5. What do you mean by Noting of the bill ? ~ho is paid for it and who pays it ?
  6. Describe any three advantages of Bill of Exchange.
  7. Give the meaning of negotiable instruments.

 

D. Long Answer Type Questions :

 

1. What is a bill of exchange ? Distinguish between bills of exchange and a promissory note.

 

2. Define bills of exchange. Prepare a specimen of it and also state characteristics of bills of exchange.

 

3. Explain the advantages of bills of exchange.

 

4. Explain the meaning of ~

(a) Days of grace                     (b) Retiring a bill under rebate

(d) Discounting a bill.             (c) Noting charges

 

5. Discuss the various uses of bills of exchange.

 

6. What do you mean by dishonour of the bill ? In what cases bill will be assumed to be dishonoured

 

7. How will you treat noting charges in the books of drawer? If:

(a) The bill is retained by the drawer. (b) The bill has been discounted with the bank.

(c) The bili has been endorsed.           (d) The bill has been sent to bank for collection.

 

8. What do you mean by renewal of a bill ? How will you deal with interest in case of renewal of a bill ?

 

9. What is bill of exchange ? Explain in brief and give its specimen.

 

10. Explain briefly the difference between dishonour of a bill of exchange and renewal of a bill of exchange.

 

11. “A Bill of Exchange must contain an unconditional promise to pay”. Do you agree with the statement ?

 

12. Explain in brief the meaning of:

(i) Days of Grace

(ii) Retiring a bill under rebate

(iii) Noting charges.

 

13. What do you mean by renewal of a bill? How you calculate and record the interest in case of renewal of a bill ?

 

PRACTICAL QUESTIONS

 

1. A sold goods to B for $ 4.000 on 1st January, 2004. On the same day, A drew a bill on B for the amount at three months. B accepted this and returned to A. The bill is duly paid on maturity. Record these transactions m the Journal of both parties.

 

2. A bill for $ 1,000 is drawn by Ram on Ahmed on 5th August payable six months after date. The bill is accepted by the drawee on presentation and duly met on maturity. Record these transactions in the books of both the parties.

 

3. A bill for $ 1.000 is drawn by Mr. Singh on Mr. Ahmed on 8th August payable two months after date. The bill is accepted by the drawee on presentation and duly met on maturity. Record these transactions in the books of both the parties.

 

4. On March 10,1998. A draws on B a bill at three months for $ 2,000, which B accepts immediately and returns to A. The bill is honoured on the due date. Pass the necessary entries in the books of both the parties.

 

5. A bill for $ 500 is drawn by Kumar on Ashok on 1st April. 2004, payable 3 months after date. The bill is accepted by the drawee on presentation and duly met on maturity. Record these transactions in the books of both the parties.

 

6. Sandeep received from Shanker an acceptance for $ 3,000 on I st September, 2003 at 3 months. Sandeep got the due acceptance and discounted at 9% per annum at his bank. On the due date, Shanker paid the required amount.

 

Give Journal Entries in the books of Sandeep and Shanker.

 

7. Azhar received from Gavaskar acceptance for $ 3.000 on 1st April. 2004 at 3 months. Azhar got the acceptance discounted at 9% per annum at his bank. On the due date Gavaskar paid the required amount.

 

Give journal entnes in the books of Azhar and Gavaskar.

 

8. On 1st March, 2004 Salish sold goods to Suresh worth $ 4,000. On that date Suresh accepted a bill drawn upon him by Satish at 3 months for the amount.

On 4th May the payment of the bill was made under rebate at 6% per annum.

Make journal entries in the books of both the parties.

 

9. A sold goods to B $ 4,000 on January 18, 2003. B accepted a draft drawn by A for the amount payable 1 after 4 months. B cleared the amount on March 21. 2003 and was allowed rebate@ 10%. , Pass entries m the books of A and B.

 

10. A sold goods to B for $ 2.000 on red it for three months. He drew on latter a bill for the amount. The bill was endorsed in favour of C, who got the payment on maturity. Give Journal Entries in the books of A

 

11. Sudershan sold goods to Rajan for $ 2,000. Rajan accepts two bills of $ 1.000 each for 3 months. Sudershan endorsed one bill to Rakesh. On due date both bills are met.

 

Pass entries in the books of Sudershan and Rajan.

 

12. (a) A bill for $ 5,000 is drawn by Bon C, and accepted by C payable at his bank. Show what entries would be passed in the books of B in each of the following circumstances :

(i) If he renamed the bill till the due date and then realised it on maturity.

(ii) If he discounted it with his bank for $ 4.800.

(iii) If he endorsed it over to his creditor Mr. Harish Gupta in settlement of his debt.

 

13. On 1st Jan. 2004, A drew a bill on B for $ 11.000 payable three months after date. Immediately after its acceptance, A sent the bill to his banker for collection. On the due date, bank collects the bill and sends the advice of collection after deducting $ 15 as collection charges.

Pass journal entries in the books of both the parties.

 

14. A bill of exchange for $. 3.000 drawn on 1st June. 2005 and payable after 3 months was discounted with bank at 10% but was dishonoured on due date and $ 8 were paid as noting charge. What was the amount claimed by the bank from the drawer ?

 

15. On 1st June. 2003. A sold goods to B for $ 1,250. B gave to A his acceptance payable one month after date. Before maturity B requests A to renew it which A does adding $ 10 to the new bill for interest Make necessary journal entries to record these transactions in the books of both A and B.

 

16. A bill of exchange drawn on 1st July. 2003 for $ 15,000 for three months was dishonoured on due date and a sum of $ 120 was incurred as noting charges. The bill was renewed for another three months with 12% interest per annum. Find out the amount of the renewed bill.

 

17. A bill of exchange drawn on 1st January, 2005 for $ 11,000 for two months was dishonoured on due date and a sum of $ 115 was incurred on noting charges. The bill has been renewed for another three months with 12% interest per annum. Interest has been paid in cash. Find out the amount of new bill.

 

18. A sold goods to Bon l st September, 2003 for $ 1,600. B immediately accepted a 3 months bill on the due date, B requested that the bill be renewed for a further period of 2 months. A agreed, provided interest at 9% was paid immediately in cash. To this, B was agreeable. The second bill was met on the due date. Give Journal entries in the books of A

 

19. Mohan’s acceptance for $ 2.000 endorsed in favour of Sohan is dishonoured. Sohan pays $ 10 as noting charges. Mohan pays $ 1,000 immediately and agrees to accept a new bill of exchange for 3 months for the balance together with interest at 12% per annum. Sohan’s account is settled by cheque. Journalise the transactions in our books.

 

20. A owed B $ 400. A accepted a bill of exchange at three months for this amount which B discounted for $ 380.

 

Give necessary journal entries in the books of A and B if this bill is:

(i) dishonoured on the due date ;

(ii) met at maturity ; and

(iii) retired under rebate at 6% per annum, two months before its maturity.

 

21. A bill receivable for $ 100 which had been discounted at $ 95 is dishonored and the bank paid $ 2 as noting charges.

Give journal entries to record the above in the books of: (i) .drawer, (ii) the drawee and (iii) the bank.

 

22. On January I, 2004. A sold goods to B for $ 500 and on the same day draws upon him a bill for the amount at three months. B accepted the bills and returned to A, who on January 4. 2004 discounted it for $ 490 with his bankers. On the due date the bill was dishonored and the bank paid $ 10 as noting charges. Pass necessary Journal entries in the books of both parties

 

23. Record the following in the journal:

(i) Bhim’s acceptance for $ 2,000 renewed for three months, plus interest at 12% per annum.

(it) Shyam’s acceptance for $ 450, due this day, returned dishonored noting charges $ 10.

 

24. Anzar sold goods to Faisal for $ 12,000 and drew on him a bill for 3 months. Faisal accepted this bill and returned it to Anzar who discounted it with his bank for a discount of $ 100. On the due date Faisal failed to honour his acceptance. He requested Anzar to draw upon him a new bill for 3 months for the original amount plus interest @ 5% per annum. Anzar agreed to this request and drew the fresh bill which Faisal accepted and duly paid on maturity.

Give entries in Anzar’s Journal